The Evolution of Minimum Wage and Its Impact on Unions and Prevailing Wages

The concept of minimum wage has been a topic of active debate and discussion for decades. Initially proposed by Theodore Roosevelt, the idea gained significant traction with the implementation of the New Deal by Franklin D. Roosevelt (FDR) during the Great Depression. However, the relationship between minimum wage and living wage is not as straightforward as it might seem. Minimum wage and prevailing wage are often conflated, with unions playing a significant role in influencing these wage levels. In this article, we explore the differences between minimum and prevailing wages, the impact of labor unions, and the consequences of implementing higher minimum wages.

Definitions and Context

Let's start with some basic definitions:

A prevailing wage

A prevailing wage is the average hourly rate of wages and benefits paid to similarly employed workers in a given geographic region. For example, cashiers at grocery stores might have an average hourly wage of $8 in a non-unionized environment. This wage is calculated based on the average wages of non-unionized workers. If a company pays $8 per hour, it aligns with the prevailing wage in that specific area.

Minimum wage

The minimum wage is the legal minimum hourly wage that employers are required to pay their workers. There are two levels of minimum wage: the federal minimum wage and state minimum wages. As of July 1, 2022, the state labor laws in a certain state require a minimum wage of $14.25 per hour, with an increase to $15 per hour effective June 1, 2023. This federal and state level minimum wages ensure that workers are compensated at a basic level to avoid exploitation.

The Role of Unions in Setting Wages

Unions play a crucial role in determining wage levels. They argue that experienced, educated, and unionized workers deserve higher wages. For instance, Sarah, a high school student working at a grocery store, earns $8 per hour in a non-union job. Unions argue that highly experienced and educated workers with union affiliations should be paid more, typically around 10% to 20% above the minimum wage.

If the prevailing wage in a state increases to $15 per hour, as will happen by June 2023, unions will push for their members to be paid even more, often advocating for wages between $18 and $19 per hour. This is because union members see themselves as being more valuable and deserving of higher compensation due to their experience, education, and union support.

Hidden Costs and Business Impact

Raising the minimum wage is not just about the hourly rate, as there are numerous direct and indirect costs associated with it. Here are the hidden costs that businesses must consider:

Unemployment compensation fund contributions Tax payments for social security and Medicare Liability insurance payments Miscellaneous fees such as banking, accounting, etc.

For example, in 2008, my business with 15 full-time employees, paying $12 per hour, faced an annual cost of $400,000. This figure doesn't include the salary I pulled from the business. Thus, the true cost of hiring employees is significantly higher than the hourly wage.

Consequences of Raising Minimum Wage

Implementing a higher minimum wage can lead to several adverse business ramifications:

Reduced business ability to hire more individuals Layoffs of existing employees Cutting available working hours Implementing self-service checkouts Raising costs on goods or services Reducing the number of products offered Presenting less affordable health plans Cutting vacation days or carryover time Not paying unused vacation time upon notice to quit

Businesses must find ways to offset these increased costs. Reducing the hourly wages is one approach, but this can lead to employee dissatisfaction and turnover. Implementing technology, like self-service checkouts, can partially offset these costs but may not be feasible for all businesses. Raising prices or reducing product offerings are also potential strategies, though they can negatively impact customer satisfaction and sales.

Conclusion and Balanced Considerations

While raising the minimum wage can provide a basic level of income for workers, the consequences for businesses can be severe. Unions play a significant role in influencing wage levels, often pushing for higher wages based on the value they perceive their members bring. However, it's crucial to consider the hidden costs and potential business impacts of such policy changes. Balancing the needs of workers with the feasibility of maintaining sustainable businesses is a complex and ongoing challenge.